Charter restructures $1.7 billion mega-deal; HealthSouth jumps on interest payment

By Paul Deckelman and Paul A. Harris

New York, Aug. 12 - Charter Communications Inc. restructured its upcoming $1.7 billion two-part bond offering and released price talk on the impending mega-deal - clearly the highlight of the day Tuesday in an otherwise mostly quiet primary market, which saw participants speculating that after an excitingly active run of a number of months, the dog days of summer had finally come to the new-deal arena.

Secondary dealings were also seen as pretty quiet, with the notable exception of HealthSouth Corp., whose bonds firmed smartly on the news that the troubled healthcare company had made its overdue interest payments and said that it would make future payments coming due.

Generally the summer lull that took hold of the high yield primary market late in the week of Aug. 4 - accompanied by news of a record-setting outflow from high-yield mutual funds - continued to hold sway during Tuesday's session.

For the second day in row the market saw no transactions completed.

However high yield observers did learn on Tuesday that the current chop in the market is not sufficient to cause Pilgrim's Pride Corp. to chicken out.

The Pittsburg, Tex.-based poultry producer gathered the pluck to bring a $100 million add-on to the 9 5/8% senior notes due Sept. 15, 2011 (BB-), which is being talked at 8 5/8%-8 7/8%, and is expected to price Wednesday via Credit Suisse First Boston.

Pilgrim's Pride chief financial officer Richard Cogdill expressed an awareness of the present choppy conditions that have reportedly beset the high-yield market.

However during a telephone conversation Cogdill said that not all deals are created equal.

"I think new issuer deals are going to have more of a discount and more difficulty getting done than an add-on for a repeat issuer like us," he said.

"We're not a new name in the industry and we're selling this offering to an indenture that's already out there - basically increasing the liquidity of that indenture. So there is a lot of upside to the bondholder."

Cogdill also allowed that the company's existing bondholders make an obvious market for the add-on notes.

"There are quite a few people who do own our bonds who aren't at their desired levels of retention," he said.

Proceeds from the deal will be used to partially fund the acquisition of the chicken division of ConAgra Foods.

"We're issuing equity to ConAgra for about 50% of the transaction," Cogdill said. "The other 50% is debt financed.

"The bond deal represents about one third of the debt financing, along with $100 million of term debt with an insurance company. The other $100 million is the retained subordinated notes that ConAgra is financing. They were actually going to carry everything other than the $100 million insurance debt. So basically we're selling off 50% of what ConAgra was going to retain because we've reduced our carry cost."

Elsewhere during the session Charter Communications, Inc. announced that it had restructured its $1.7 billion junk bond offering (CCC-) and issued price talk on the deal which is expected to price on Thursday afternoon.

The St. Louis-based cable operator's restructured deal will now be issued only through Charter Communications Holdings II and CCH II Capital Corp. and is comprised of seven-year non-call-four notes talked at 9¼%-9½% and 10-year non-call-five notes talked 9 3/8%-9 5/8%.

Late in the session tranche sizes remained to be determined on the deal. Bookrunners are Citigroup, Banc of America Securities and JP Morgan.

Originally the deal was structured into two $850 million 10-year non-call-five senior note tranches, one to be issued by Charter Communications Holdings I and CCH I Capital Corp. and the other by Charter Communications Holdings II and CCH II Capital Corp. The deal was restructured in part because CCH I was subordinated to CCH II; the restructuring was undertaken in part to eliminate confusion, according to sources familiar with the deal.

Timing also emerged during the session on Nevada Power Co.'s $350 million of 10-year general and refunding mortgage notes series G (Ba2/BB), which are expected to price Wednesday via Merrill Lynch & Co. However no price talk was available and an informed source told Prospect News that talk would not be out until Wednesday.

Finally on Tuesday a capital markets source told Prospect News that Huntsman International LLC could bring $300-$600 million in bonds provided its lenders agree to amend its credit agreement.

Currently the bond offering is anticipated to be sized at $365 million with Deutsche Bank slated to lead the deal, which is not expected to hit the market until after Labor Day.

Proceeds would be used to completely repay all outstanding revolver debt.

In the secondary, HealthSouth - a Birmingham, Ala.-based provider of diagnostic imaging, outpatient surgery and rehabilitation services - said that it was able to pay the $117 million in back interest which it had owed, due to improving liquidity from operations and asset sales.

A distressed-debt trader said that HealthSouth paying what it owed its bondholders and assuring them that it will make its future interest payments "was big news" on a day that otherwise saw not much activity.

Another distressed-debt trader saw the company's bonds "up a couple of points," quoting its senior bonds, such as its 8 3/8% notes due 2011 at 83.5 bid, 85.5 offered, "up a couple," and its subordinated 10¾% notes due 2008 six points better, at 82 bid, 84 offered.

He also saw the company's convertibles up, quoting them at 84 bid, up from 75 bid previously; in addition to announcing the past-due interest payment and promising to make future payments, HealthSouth said that it has begun talks with the holders of its $344 million principal amount of 3¼% convertible subordinated debentures, which matured on April 1, on an exchange offer for those converts.

At another desk, a trader quoted the senior bonds at 83 bid, 85 offered, with all of the bonds now trading with accrued interest (they had previously been trading flat, or without the accrued interest). Clearly, he said, HealthSouth "was the big mover of the day."

HealthSouth has been a troubled name for some months, bedeviled by allegations that it had inflated earnings by as much as $2.5 billion over the last several years.

The ongoing federal probes of the provider of diagnostic imaging and outpatient surgery and rehabilitative services resulted in the indictment and guilty pleas of a number of former executives, and caused the ouster of founder and long-time head Dr. Richard Scrushy, whose tenure as chairman and CEO is currently being scrutinized by the feds, although he has not been charged with anything.

All of these troubles caused its stock to be de-listed, drove its bonds down to deeply distressed levels from prior levels around par, and spurred speculation that the company might have to seek bankruptcy protection from its creditors in order to straighten out its finances - an option that HealthSouth has steadfastly said it would not pursue.

The payment of the overdue interest and the company's moves to resolve the busted convertible situation are seen by observers as steps in helping to move it away from the possible Chapter 11 filing debt market participants have been talking about.

Elsewhere, Pegasus Communications Corp. - whose bonds were heard to have fallen as much as 10 points on Monday - remained around those same lower levels on Tuesday.

Those bonds had fallen after the nation's largest satellite television broadcaster, DirecTV, announced a settlement of its lawsuit with a group of companies, including Pegasus, that resell its service in rural markets - a settlement that would ultimately hand control of those customers back to DirecTV. Bala Cynwyd, Pa.-based Pegasus said late Monday that it was not a party to the settlement between DirectTV, - an indirect General Motors Corp. subsidiary - and the National Rural Television Cooperative, and said that even though the settlement calls for NRTC members to give the subscribers back to DirecTV in 2011 for $150 a head, it would not be forced to relinquish them if it did not want to, and was still pursuing its own litigation with DirecTV. That initially helped Pegasus shares - which had fallen 37% on Monday - to bounce back Tuesday, although they gave back the early gains to close slightly lower Tuesday.

On the bond side, Pegasus' 12 3/8% notes due 2006 - which fell to 85 bid Monday, down from 93.5 previously - were quoted Tuesday at a very wide 81 bid, 88 offered, a trader opining that "they haven't settled in yet," with investors still uncertain about whether Pegasus' defiant statement was to be taken seriously or was just a negotiating ploy.

Elsewhere, the trader saw Shaw Group's 10 3/8% notes "a little weaker," quoted at 83 bid, 85 offered, down from 85 bid, 87 offered last week.

He saw Charter's 8 5.8% notes up half a point to a point in the 74.5 bid, 75.5 offered range. At another desk the St. Louis-based cable operator's 10% notes due 2011 were seen a point-and-a-half firmer at 75.

Several power generators released second-quarter earnings data, most notably Reliant Resources Inc., whose debt and shares nosedived following the Houston-based energy and electricity company's release of disappointing quarterly numbers.

Reliant's 9½% notes due 2013 were quoted down nearly eight points on the session, at 86 bid.

A market observer, confirming that level, opined that Reliant's bonds "were all over the place."

A bond trader agreed that the Reliant bonds "got hit hard," pegging them at 84 bid, 86 offered going home, down from morning levels he saw around 89 bid, 90 offered.

On the stock side, Reliant's New York Stock Exchange-traded shares swooned $1.10 (22.09%) to close at $3.88, on volume of 29.1 million shares - nearly 12 times the usual 2.5 million-share handle.

Reliant reported a second-quarter loss from continuing operations of $28 million, or nine cents per share, versus a year-earlier profit of $122 million, or $42 cents per share.

Reliant's loss in the latest quarter was attributed primarily to reduced earnings from the company's retail segment, weak wholesale earnings, and an increase in interest expense and amortization of financing costs associated with its $5.9 billion refinancing on March 31.

Other energy operators releasing numbers Tuesday included Williams Companies Inc., CMS Energy Corp. and Aquila Inc.

Several traders said they hadn't seen Williams at all during the session, although one saw its 8 1/8% notes due 2012 up more than a point at 97.50.

A market source saw Dearborn, Mich.-utility operator CMS' debt down at least half a point to a point, with its 8.90% notes at 96 bid. He saw Aquila's 7 5/8% notes due 2009 "just a little weaker," off a point at 82.5 bid.

AES Corp. 8¾% notes due 2015 were off more than a point at 96 bid.

But a trader said that apart from isolated individual names "it was unbelievably quiet. We didn't hear a lot of anything going on. It was pretty dismal."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.